Yue Yuen reported profits grew 3.7 percent in the first quarter despite a 4.0 percent decline In revenues, mainly dragged by weak sales at its Pou Sheng retail chain.
The Group recorded revenue of US$2,394.4 million in the first three months of 2022, representing a decline of 4.0 percent compared to US$2,493.3 million in the same period of 2021, with the resilient performance of its manufacturing business being largely offset by weak retail sales in mainland China following recent COVID-19 outbreaks.
In the three months ended March 31, 2022, the revenue attributable to footwear manufacturing activity, including athletic/outdoor shoes, casual shoes and sports sandals, increased by 14.8 percent to US$1,394.2 million, compared with the corresponding period of last year. The volume of shoes shipped during the period increased by 3.8 percent to 70.9 million pairs, which was attributed to solid global demand for the Group’s footwear products. The average selling price increased by 10.5 percent to US$19.65 per pair as compared with the corresponding period of last year, led by demand for the Group’s high-end footwear and its ongoing efforts to refine its product mix and obtain more high-value orders.
In the first three months of 2022, the Group’s total revenue, with respect to the manufacturing business, including footwear, as well as soles, components, and others, was US$1,531.9 million, representing an increase of 12.2 percent as compared with the corresponding period of last year.
During the period, the revenue attributable to Pou Sheng, the Group’s retail subsidiary, declined by 23.5 percent to US$862.5 million, compared to US$1,127.7 million in the same period of last year. In RMB terms, Pou Sheng’s reporting currency, revenue during the first three months of 2022 declined by 25.0 percent to RMB5,480.6 million, compared to RMB7,306.8 million in the corresponding period of last year, which was mainly attributed to weak foot traffic in the shopping venues and cities where Pou Sheng operates following COVID-19 lockdowns and local government’s closed-loop management across mainland China.
In the first three months of 2022, the Group’s gross profit decreased by 10.5 percent to US$568.3 million. The gross profit of the manufacturing business increased by 5.7 percent to US$262.3 million while the gross profit margin reached 17.1 percent. This represented a decline of 1.1 percentage points as compared to the corresponding period in 2021 but an increase of 1.1 percentage points as compared to the fourth quarter of 2021. The improvement of the gross profit margin, compared to the previous quarter, was mostly attributed to a better capacity utilization of around 91 percent, lifting operational efficiency.
The gross profit margin for Pou Sheng increased by 1.2 percentage points to 35.5 percent, as compared to the corresponding period of 2021, due to an enhanced channel mix and the optimization of markdowns within a dynamic retail environment.
Selling & Distribution Expenses, Administrative Expenses And Other Income/Expenses
The Group’s total selling and distribution expenses during the first three months of 2022 amounted to US$290.2 million (2021: US$320.0 million), equivalent to approximately 12.1 percent (2021: 12.8 percent) of revenue.
Administrative expenses for the period were US$143.0 million (2021: US$150.6 million), equivalent to approximately 6.0 percent (2021: 6.0 percent) of revenue.
Net other expenses decreased by 7.8 percent to US$22.0 million (2021: US$23.8 million), equivalent to 0.9 percent (2021: 1.0 percent) of revenue.
Share Of Results Of Associates And Joint Ventures
In the first three months of 2022, the share of results of associates and joint ventures was a combined profit of US$13.4 million, compared to a combined profit of US$20.1 million recorded in the corresponding period of last year.
Profit Attributable To Owners Of The Company
The profit attributable to owners of the company amounted to US$88.6 million, representing an increase of 3.7 percent year on year as compared with US$85.4 million recorded in the corresponding period of last year.
During the period, the Group recognized a non-recurring profit attributable to owners of the company of US$6.5 million due to a gain on fair value changes on financial instruments at fair value through profit or loss (FVTPL). In the same period of 2021, the Group recognized a non-recurring loss attributable to owners of the company of US$0.5 million, which included a gain of US$6.1 million due to fair value changes on financial instruments at FVTPL, offsetting an impairment loss of US$7.6 million on interest in an associate. Excluding all items of non-recurring nature, the recurring profit attributable to owners of the company amounted to US$82.1 million for the three months ended March 31, 2022.
The Group is cautiously optimistic about the continued growth of its manufacturing business with global demand for its footwear products remaining solid. It continues to see a good and more visible order pipeline, although short-term risks to its manufacturing business remain, particularly those posed by COVID-19 in mainland China and from labor supply in certain Southeast Asia countries. The Group will continue to actively manage its supply chain and allocate its manufacturing capacity to balance demand, its order pipeline and labor supply.
While the Group does not currently expect any rapid deterioration in its operating environment, current economic and political events, including inflation, interest rate hikes and geopolitical tensions, may still threaten the stability of its business. As a result, it will continue to closely monitor future order sentiment and any uncertainties that emerge amid increasingly volatile global market conditions. The Group will continue to maintain flexibility and agility to sustain its efficiency and productivity while leveraging its core strengths, adaptability and competitive edges to overcome short-term disruptions. The Group aims to anchor the sustainable growth and profitability of its business.
Photo courtesy Yue Yuen/Pou Sheng